A cautionary tale on lending to service members

The U.S. Department of Justice has reached a $12 million settlement with Capital One Bank of a lawsuit alleging violations of the Servicemembers Civil Relief Act.

The settlement applied to auto loans as well as mortgages and other accounts.

According to the Justice Department, for a period of slightly more than five years ending in 2011, Capital One improperly denied service members’ requests for interest rate reductions that they were entitled to receive on obligations incurred before they entered military service. According to the settlement, service members, upon written request, can have the interest rate they pay reduced to 6 percent.

Also, some service members’ vehicles were improperly repossessed, the Justice Department said. Under the settlement, Capital One agreed to pay an unspecified number of service members whose cars had been repossessed at least $10,000 each.

For other lenders with significant auto loan business with service members, it’s something to think about.